Recovery Zone Bonds   

 

  RECOVERY ZONE BONDS

2

Presented By:Office of Broward County

Economic and Small Business Development

January 29, 2010

Business & Industry Services Section

Targeted Industries• Advanced Materials & Hi-Tech Mfg.• Alternative Energy & Renewable Resources• Aviation/Aerospace• Global Business Services• HQ &Management Operations• Human Resources Development & Higher

Education• International Media & Production• International Trade & Logistics• Life Sciences• Marine

3

4

Presentation• Information on the Department of Economic

Development (DED) Official Notice• Recovery Zone (RZ) Bonds - History and

Applicable Laws• Types of Recovery Zone Bonds• Allocation of Recovery Zone Bond Cap• Features and Uses • Re-allocation of Recovery Zone Bond Cap• Timelines and Forms

5

History and Applicable Laws

•The “American Recovery and Reinvestment Act of 2009” created a number of new financing options for communities▫Providing valuable incentives for both public

and private projects▫With limited windows of opportunity

•Recovery Zone Bonds Shall be treated in a similar fashion to a private activity bond under § 141(a) and provides a re-allocation procedure to assure maximum use of the RZ bond cap statewide

6

Types of Recovery Zone Bonds (RZB)

•Two types of bonds (both referred to as RZB)▫Recovery Zone Economic Development

Bonds▫Recovery Zone Facility Bonds

• Issued for completely different purposes •Benefits of each are completely different•Must be issued prior to January 1, 2011•Each type of RZ Bonds is capped by a

separate allocation amount

7

Types of Recovery Zone Bonds (RZB)•Recovery Zone Bonds may be used to

finance certain purposes and properties within designated “recovery zones”

•A “recovery zone” is:▫An area designated as having significant

poverty, unemployment, rate of home foreclosures, or general distress

▫An area economically distressed due to military installation closure or base realignment

▫An empowerment zone or renewal community

8

Recovery Zones•“Recovery zones” are designated by

resolution/ordinance of the city/county receiving an allocation▫ Option A – Early adoption of a resolution/ordinance

designating the entire community (or significant portion) as a Recovery Zone

▫ Option B –Designate Recovery Zone as projects becomes known

•Consult with your bond counsel

9

Recovery Zones

• Designating the zone should generally not be a barrier to use

• For Recovery Zone Facility Bonds - only expenditures incurred after a Recovery Zone is designated can be reimbursed

• For Recovery Economic Development Bonds – ordinary reimbursement resolution rules apply

• No refundings or refinancings–new money only

10

Allocation of RZ Bond Cap

• Bond allocation amounts were determined by US Treasury based on relative declines in employment in 2008

• Florida Recovery Zone Economic Development Bond allocations total $538,485,000.

• Florida Recovery Zone Facility Bond allocations total $807,727,000

• 41 FL counties and 18 cities received allocations

• Allocation amounts can be found on EFI website at www.efi.com

Broward County Allocation Cities Recovery Zone Recovery

Zone▫ Economic Development

Facility

Bonds Bonds

• Fort Lauderdale, FL 8,045,000 12,068,000• Coral Springs, FL 5,913,000 8,869,000• Hollywood, FL 6,155,000 9,232,000• Miramar, FL 4,627,000 6,940,000• Pembroke Pines, FL 6,424,000 9,636,000• Pompano Beach, FL 4,009,000 6,014,000

• Broward County, FL 40,739,000 61,108,000

11

12

Allocation of RZ Bond Cap

•The 41 counties and 18 cities receiving allocations are referred to in the DED Notice as “allocation designees”

•“Allocation designees” may:▫Authorize a public entity created by the

Allocation Designee (such as an Industrial Development Authority or a county public building corporation) to issue RZB’s

▫Allocate all or a portion to an unrelated political subdivision within its jurisdiction (such as a city in a county)

13

Features and Uses Recovery Zone Economic Development Bonds

•Used to finance certain “qualified economic development purposes”

•“Qualified economic development purposes” means expenditures for promoting development or other economic activity within zone including:

Capital expenditures for property in the zone Expenditures for public infrastructure Expenditures for public facilities Job training and educational programs

14

Features and Uses Recovery Zone Economic Development Bonds

• Issued for public/governmental purposes• Interest on RZ Economic Development Bonds is

taxable• Issuer receives a cash subsidy from the US

Treasury equal to 45% of the total interest payable to bond owners (this should result in net interest cost lower than tax-exempt bonds)

• Likely issued in FL as:▫ General obligation bonds▫ Utility revenue bonds▫ Leasehold revenue bonds▫ Certificates of participation▫ Special obligation bonds

15

• Recovery Zone Economic Development Bonds are similar to another tool of ARRA: “Build America Bonds (BAB’s)”

• “BAB’s” have no allocation cap• “BAB’s” issuers receives a cash subsidy from the

Treasury equal to 35% of the total interest payable to investors

• “BAB’s” may be issued by state and local governments as an alternative to issuing traditional tax-exempt governmental bonds

Features and Uses Recovery Zone Economic Development Bonds

16

• Recovery Zone Economic Development Bonds and Build America Bonds may be issued to finance a single project

• Davis-Bacon applies to Recovery Zone Economic Development Bonds (but not Recovery Zone Facility Bonds)

Features and Uses Recovery Zone Economic Development Bonds

17

Features and Uses Recovery Zone Facility Bonds

• Used to finance new capital improvements owned and used by almost any:▫ Industrial▫Commercial▫Retail▫Office▫Or other business activity located in a

“recovery zone”• Exceptions are rental housing, airplanes, health

clubs, liquor stores, race tracks, luxury boxes, gambling massage parlors etc

18

Features and Uses Recovery Zone Facility Bonds

• Issued for private projects• Interest is tax-exempt (this is the sole subsidy)• No cash subsidy from Treasury• Offer lower interest rates• Likely issued in FL as:

▫ Industrial revenue bonds▫ Industrial development bonds▫Other types of private activity bonds

• Debt service is funded by the private business that owns and uses the property

19

Reallocation of RZ Bond Cap

•The short lifespan (12/31/2010) may result in some entities not using all or a part of their allocation

•The reallocation process will assure maximum use of the tool in the state and maximum economic impact for Florida as a whole

•Reallocation is an important part of Recovery Zone Bonds

20

Reallocation of RZ Bond Cap

•Each “allocation designee” may waive all or part of its allocation

•Waiver can be done by agreement between designee’s within a county boundary

•There is no Notice to Issue when the allocation designee reallocates its allocation to another eligible entity

21

Reallocation of RZ Bond Cap

•Each allocation designee must notify EFI upon issuance of bond cap, including issuance of that allocation used by another eligible entity

•Any allocation (either Recovery Zone Economic Development Bonds or Recovery Zone Facility Bonds) not used by an entity by July 10, 2010 must be reallocated within the county

22

Reallocation of RZ Bond Cap

•EFI will track amounts of Recovery Zone Bonds ▫Used at the local level▫Waived to other eligible designees▫Recaptured by the County and reallocated

•EFI may provide an application process for use of waived or recaptured bond allocations

•EFI will accept applications from every eligible public entity

23

Reallocation of RZ Bond Cap

•Forms and procedures for reallocating RZ Bond cap within a County should be established – EFI advises contacting your bond counsel

24

Other Bond Related Changes

•The IRS has expanded the definition of “manufacturing facilities” to allow more manufacturing projects to qualify for tax exempt bonds under the private activity bond rules

•Private activity bond allocation is available•The IRS has changed the rules that apply

to banks allowing banks to benefit from the purchase of private activity bonds

25

Timelines and Forms

• Important Dates:▫July 1, 2010 –date of recapture of any un-

used bond allocation▫January 1, 2011 – deadline date for issuing

Recovery Zone Bonds before they expire

26

Timelines and Forms

• Important Forms: ▫Notice of Waiver of Recovery Zone Bond

Allocation▫Recovery Zone Bond Notice of Intent to Issue▫Form Recovery Zone Designation

• Important Forms to be posted on web:▫Application for RZB Bond Cap - DED▫Notice of Reallocation to Local Issuer▫Notice of Issuance and Bond Closing